We're still in the Enlightenment, only now reason has shown us that we are not reasonable - and a more empirical study of man helps us remember the point of the whole program

Monday, December 21, 2009

Robert Frank, Che Guevara and Chilean Miners

In the Motorcycle Diaries, Che Guevara and his roadtrip buddy come upon a couple huddling at a stony roadside in the nighttime Chilean desert. They're waiting for mining bosses to show up and hire them to work in Chuiquicamata mine. They're poor, and they're cold. Moved by their plight, Guevara and friend give their coats to the people. (This was the period before Guevara was killing his own soldiers for not being enthusiastic enough, something that it would be useful for the world's T-shirt wearers to remember.)

Of course we're led to assume (implicitly) that the Anaconda mining bosses (who are often unpleasant, to put it mildly) are villains. But it's hard to ignore that the mining company is what makes it possible for them to make this living, the unpleasantness of its bosses notwithstanding. I most emphatically don't mean to call this couple whiners, or to diminish the back-breaking grind of mining. But the salient point is that without the mining company and its bosses, the couple in question would go from making at least some living, to making no living. But because in general humans have difficulty thinking about counterfactuals and the effect of status on their actions and happiness, this reality remains masked.

What does that mean? Think about this: imagine you have a chance to be the only person making $120,000 a year in a neighborhood where everyone else makes $100,000; or, you could be the only person making $180,000 a year in a neighborhood where everyone else makes $200,000. For simplicity, let's say you can change neighborhoods at will, so you're not permanently committing. No equivocating about
relative purchasing power - in the second case, you get $60,000 more per year of stuff, including a safer neighborhood. If humans were rational optimizers of external wealth, this would be a no-brainer for everybody - take the $180,000, and who cares that the neighbors think you're low-class, right? Wrong. This is a tough
call for most people, because relative status matters a great deal to human beings. This of course is the classic Frank conundrum.

How does this apply to the miners? When the couple is making a living, their needs are taken care of, but they have to deal with unpleasant mine bosses (often foreign ones); they certainly aren't making $180,000, but they're at least making something, although in earning a living they have to deal with unpleasant and often foreign bosses whose own status reminds the miners of their station in life. On the other hand, when the miners are unemployed, they don't have to deal with unpleasant bosses to obtain the non-money that they're not making. It's a difference between being made acutely aware of their social status and under the control of people they don't like when they're making some money, versus not being hassled by non-bosses who are not giving them money they're not making.

(One obvious solution to diminish any reputation for being abusive imperialists is to enforce fairness in hiring and labor standards above and beyond what is the local norm. This works at home too, as American technology companies in the 1980s competing for talent began to realize. Of course, Anaconda was not forced by any such labor shortage to do so, which is where governments come into the picture. If you think free markets work, it's in your interest to take actions to make other people favor them too. Given their impact on Guevara, unpleasant bosses at Chuquimacata certainly didn't do capitalism any favors in South America.)

The default position of human societies is poverty, not wealth, and sometimes, only foreigners have the capital to begin profitable operations. The unpleasantness of earning a living seems especially acute when the work is difficult and the labor market is imbalanced, and mineral extraction is probably the best example. But if there were no mine, these poor would have been poorer. There is a lesson for Americans in this too. Yes, you might not like your boss, and you might not like that a Japanese company just bought out your plant. Given the state of credit markets in the U.S., without them the plant would have closed. And no one is making you work there. Remember - for simplicity, you can change neighborhoods at will.